Fed income swells to record

By IBT Staff Reporter On 01/12/10 AT 9:48 AM

The Federal Reserve banks paid a record $46.1 billion to the U.S. Treasury in 2009 as aggressive bond purchases and lending to fight the financial crisis swelled its net income by nearly 47 percent to a record $52.1 billion.

The Fed's payment to the Treasury represents an increase of $14.4 billion over its 2008 contribution and was the largest since the U.S. central bank was created in 1914.

The 12 Federal Reserve banks are required to transfer their profits to the Treasury after paying dividends to member banks and retaining some of their surplus. The largest previous payment to the Treasury was $34.6 billion in 2007.

From its total 2009 net income, the Fed paid dividends to member banks of $1.4 billion and kept $4.6 billion of earnings as paid-in capital.

The Fed said much of its income, $46.1 billion, came from its open-market buying of U.S. Treasury debt, Fannie Mae and Freddie Mac debt, mortgage bonds and other securities. The bond buying program, which helped swell the Fed's balance sheet to over $2 trillion, was aimed at holding down interest rates to spark an economic recovery.

The Fed earned a net $5.5 billion from limited liability companies created in response to the financial crisis to make loans and take over assets from financial rescues of big institutions such as Bear Stearns and insurer AIG .

It earned $2.9 billion from earnings on loans to banks, primary dealers and other institutions.

Currency swap arrangements created with 14 central banks during the crisis, along with foreign currency investments, netted profits of $2.6 billion in 2009, the Fed said.